VW back on track but 'dieselgate' clouds gather over Audi

2016-10-28 07:32

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EMISSIONS SCANDAL: Audi, which developed the VW group's 3.0-litre engines, said it had to deal with 'additional financial burdens' amounting to €620-million in the third quarter of 2016. Image: Wheels24

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Frankfurt - German auto giant Volkswagen lifted its forecast for the year after swinging back to profit, but the fallout from the group's "dieselgate" emissions cheating scandal weighed heavily on its luxury brand Audi.

One year on from the crisis, the VW group's recovery appeared on track as it posted net profit of $2.5-billion for the three months to September.

That was slightly less than analysts had predicted but a sharp improvement from the 1.7-billion euro net loss over the same period in 2015

'Negative impact'

"Despite major challenges and the negative impact of the diesel issue, the Volkswagen group remains on a solid financial footing," said chief financial officer Frank Witter in a statement.

But the result was overshadowed by news that Audi -- the biggest contributor to VW's profits -- had lowered its own outlook as it grapples with rising costs related to dieselgate and a recall over faulty airbags made by supplier Takata.

Legal bills

VW was plunged into its deepest-ever crisis after it admitted in September last year that it had installed cheating software in 11-million diesel engines worldwide to make them seem less polluting than they were.

The controversy pushed VW into the red for the first time in more than 20 years when it booked a loss of €1.6-billion in 2015 due to the provisions it was forced to set aside to cover the costs of the crisis.

The provisions to pay for refits, buy-backs and legal costs have so far amounted to around €18-billion and VW said it had added some €400-million more to the pot in the third quarter.

Analysts believe the final bill could be far higher.

"We still expect the total costs to come to between €25 - €35-billion," Frank Schwope of Nord/LB bank said.

But in a sign it was turning the tide, VW group predicted that its full-year sales revenues "may reach the prior year figure", raising its previous forecast of a 5% drop year-on-year.

It now also sees its operating return on sales -- a measure of profitability -- reaching the "upper end" of the previously forecast range of 5 to 6%.

Revenues had climbed by 1% in the third quarter to nearly €52-billion, lifted by strong sales in China, VW added.

Audi's woes

The improved outlook for the group came two days after a US judge granted final approval for a $14.7-billion class action settlement in the emissions cheating scandal, the largest of its kind by a car manufacturer.

It offers compensation to nearly half a million owners of polluting Volkswagen and Audi diesel-powered vehicles in the US, and resolves some claims brought by environmental regulators who had sought penalties for VW's violations of pollution laws.

But the company is still in talks with US federal prosecutors to settle criminal allegations related to the cheating.

VW also needs to conclude a separate settlement in the US concerning about 80 000 Audi and Porsche cars with 3.0-litre engines equipped with the so-called defeat devices.

Audi, which developed the group's 3.0-litre engines, said it had to deal with "additional financial burdens" amounting to €620-million in the third quarter.

It added that it expected its operating return on sales for 2016 to be "considerably below" its target of 8% to 10%.

Meanwhile, the VW group still faces a myriad of lawsuits in Europe where it has pledged to fix the rigged cars by next year.

It has not offered compensation to European owners however, much to the dismay of EU officials who have piled pressure on VW to show the same generosity as in the US.

VW shares were down 0.44% to €125.45 in late afternoon trading in Frankfurt.